## Related questions with answers

Maryland Light, a U.S. light fixtures manufacturer, is considering an investment in Japan. The dollar cost of equity for Maryland Light is $13.34 \%$. You are in the corporate treasury department, and you need to know the comparable cost of equity in Japanese yen for a project with free cash flows that are uncorrelated with spot exchange rates. The risk-free interest rates on dollars and yen are $r_{\mathrm{S}}=5.64 \%$ and $r_{\mathrm{Y}}=1.28 \%$, respectively. Maryland Light is willing to assume that capital markets are internationally integrated. What is the yen cost of equity?

Solution

VerifiedFirst, let's see the formula we will use to calculate the yen cost of equity which we denote with $YC$

$\begin{align*} YC&=\frac{1+RD}{1+RY} \times (1+DC)-1 \end{align*}$

where the risk-free rate dollar $RD$ is $5.64\%$, risk-free rate yen $RY$ is $1.28\%$ and the dollar cost of equity $DC$ is $13.34\%$

## Create an account to view solutions

## Create an account to view solutions

## More related questions

1/4

1/7